FCA Clarifies Aspects of the Consumer Duty, Sets Out Priorities and Plans Further Consultations | Insights

Executive Summary

What’s new: Three key updates from the FCA on the Consumer Duty clarify how it should be applied and outline areas where the FCA is focused, including insurance conduct rules, mortgage rules, value reporting, advertising and cryptoasset activities. The clarifications and proposed amendments address industry concerns about regulatory overreach, cost and complexity, especially for wholesale and cross-border activities.
Why it matters: Streamlined communications and regulatory requirements should reduce compliance burdens and improve clarity. Changes to client categorisation and the scope of the duty may significantly affect product structuring, distribution chains and compliance frameworks.
What to do next: Given the FCA’s focus on data protection, price/value outcomes and sector-specific risks, businesses subject to the duty should prepare for increased scrutiny in priority sectors and ensure robust compliance with price and value outcomes. They will also want to review and update compliance frameworks to reflect clarified expectations, particularly around product governance and distribution chains.

__________

The Consumer Duty (the Duty) remains one of the key priorities for the Financial Conduct Authority (FCA) under its 2025-2030 Strategy. It was introduced to strengthen protection for retail consumers who may lack expertise and bargaining power. The Duty imposes a higher standard of care on firms, requiring them to act in a manner that delivers good outcomes for consumers.

Recognising the need to refine the regime, the FCA sought industry input in July 2024, convened a regulatory summit in July 2025 and issued several consultations. On 30 September 2025, the FCA published three updates on the Duty:

This note summarises these updates and their implications for firms.

Review of the Duty’s Requirements

Following feedback received at the July 2025 regulatory summit, the FCA has provided several clarifications and updates on the Duty’s requirements.

Clarification of How the Duty Applies to Firms in Distribution Chains

The FCA will consider proposals on co-manufacturing in insurance and set out next steps in the fourth quarter of 2025. The proposals will modify the rules to allow co-insuring firms to appoint a “lead firm” which will have the sole responsibility for compliance with insurance manufacturer’s obligations under the Product Intervention and Product Governance Sourcebook (PROD 4). In addition, the FCA intends to provide broader clarity to all firms as to its supervisory approach to collaboration during product manufacturing by the end of 2025.

In the first half of 2026, the FCA intends to consult on amendments to the Duty to address how it applies across distribution chains, in addition to consulting on proposals to limit the Duty’s application to business conducted with UK customers only.

Guidance on the Scope of the Duty

The FCA will continue to publish additional material to help firms understand and implement the Duty, including information and examples concerning product and service governance, outcomes monitoring, and consumer understanding. These publications are intended to improve consistency and transparency across the market.

Coordination With the Financial Ombudsman Service (FOS)

To improve alignment between the FCA and the FOS, the two bodies have jointly consulted on changes to the legislative test used by the FOS in determining complaints, as well as on the introduction of a new referral mechanism. This is intended to modernise the redress system with the introduction of reforms to allow for a quicker and more effective resolution of complaints. The FCA expects to publish next steps in the first half of 2026. See our 5 August 2025 client alert “HM Treasury and UK Regulators Announce Wave of Reforms.”

Consistency in Rules and Definitions

The FCA has confirmed that it will consult on updates to the client categorisation rules and will review related definitions to ensure greater alignment across the FCA Handbook. This work is aimed at reducing ambiguity and ensuring that similar concepts are treated consistently in different regulatory contexts. Related to this, the FCA have already carried out a review of the client categorisation in corporate finance firms, identifying weaknesses and areas for improvement.

Senior Managers and Certification Regime (SM&CR)

The FCA has paused its review of the product governance, client asset, and training and competence sourcebooks. Instead, it will prioritise work on reforms to the Systems and Controls (SYSC) requirements and to the SM&CR.

Regulatory Communication and Legacy Guidance

The FCA outlined progress on its broader programme to streamline regulatory requirements. It has embedded a new feedback tool within the FCA Handbook website to enable firms and users to provide direct suggestions for improvement.

It has also simplified supervisory communications by retiring over 90 “Dear CEO” and portfolio letters in April 2025, and more than 100 multi-firm and thematic reports in August 2025. These have been replaced with more concise market updates and thematic summaries.

Looking ahead, the FCA has committed to several further actions, including:

Conducting a consultation on the international application of insurance conduct rules in mid-2026.
Analysing responses to its June 2025 discussion paper on mortgage rules and announcing next steps in due course.
Publishing policy statements in the fourth quarter of 2025 on the assessment of value reporting for asset managers and on the simplification of rules for insurance and funeral plan providers.
Consulting on revised advertising rules for consumer credit in the first quarter of 2026.
Consulting on targeted clarifications to Handbook materials in the fourth quarter of 2025.
Launching a pilot programme in early 2026 to produce practical guidance for smaller consumer finance firms.

FCA Focus Areas for 2025/2026

The FCA’s priorities for the coming year include:

Embedding the Duty and Sharing Good Practice

The FCA aims to entrench the Duty across sectors to ensure robust consumer protection while avoiding overly prescriptive rules. It will conduct multi-firm reviews examining firms’ approaches to outcomes monitoring, product design, customer journey mapping and consumer understanding. The FCA may request data where necessary and provide feedback to assist firms with implementation.

Data Protection Issues

In recognition of the role that artificial intelligence (AI) and other data-driven technologies play in transforming financial services. the FCA is working with the Information Commissioner’s Office (ICO) to clarify how firms can balance data protection obligations with the Duty’s requirements. Further guidance is expected in the first quarter of 2026.

Supporting Firms on the Price and Value Outcome

The FCA continues to focus on ensuring that prices paid by consumers are reasonable relative to benefits received. Products prioritised for review in 2025 include:

Pure protection insurance products.
Unit-linked pensions and long-term savings.
Premium finance.

An interim report on premium finance was published in July 2025, with reports on other areas to follow later in the year.

Sector-Specific Priorities

The FCA will target sectors presenting potential consumer harm, focusing on:

Retail banking, particularly how small business banking firms’ current accounts are complying with price and value outcome.
Consumer finance and how consumers understand the terms and conditions of credit card products.
Consumer investments, with a focus on complex exchange-traded products and loan-based crowdfunders.
The wholesale buy-side and how model portfolio services firms are implementing the Duty.
Sustainable finance, including finalising the rules on the extension of sustainable disclosure requirements in portfolio management.

The FCA notes that timelines may evolve in response to emerging risks across sectors.

Letter to the Chancellor: Application of the Duty to Wholesale Firms

The Duty was designed to protect retail consumers and enhance confidence in financial products and services. However, its application to certain wholesale activities has created uncertainty.

In response to HM Treasury’s request for greater clarity (as part of the Leeds Reforms), the FCA wrote to the Chancellor outlining concerns and a proposed action plan.

The FCA’s key concerns are:

Unintended application to business-to-business activity.
Inclusion of non-UK customers, increasing cost and complexity.
Uncertainty where firms lack a direct retail client relationship.
Inconsistent treatment of distribution chain roles.
Implementation costs and proportionality issues.
Overlap with protections for sophisticated retail investors.

Under its proposed action plan, the FCA will:

Clarify expectations when firms collaborate to manufacture products for retail customers.
Consult on updating the client categorisation framework to ensure that sophisticated investors are not subject to unnecessary retail protections.

In the first half of 2026, the FCA plans to consult on:

Revisions to the Duty’s scope and exemptions, including delineating business-to-business activity and reliance arrangements within distribution chains.
Removal of non-UK customers from the Duty’s scope to reduce regulatory duplication and support UK competitiveness.

Application of the Duty to Regulated Cryptoasset Activities

The Duty currently applies to certain cryptoasset-related activities (e.g., authorised firms approving financial promotions for qualifying cryptoassets or offering exchange-traded notes to retail customers).

The FCA is consulting on two options for broader application of the Duty to all cryptoasset activities:

Extending the Duty, supplemented by additional tailored rules.
Disapplying the Duty and introducing bespoke consumer-protection provisions.

See our 29 September 2025 client alert “UK FCA Publishes Consultation Paper on the Application of FCA Handbook for Regulated Cryptoasset Activities.”

Next Steps

The proposed refinements aim to simplify the Duty and provide greater certainty for firms on its scope and expectations. Firms should monitor upcoming consultations and engage where relevant.

We will continue to provide updates as the FCA’s work on the Duty progresses.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.